India proves tempting prize for international brewers

Major brewing groups are clamouring to get into India, which, by dint of its young population, expanding economy and rising personal disposable income offers huge growth potential. International groups have already made substantial inroads by partnering with local companies, writes Tom Joyce of Euromonitor International, and more such tie-ups are imminent.

The Indian beer market has attracted major investment from international brewing groups, such as SABMiller and Scottish & Newcastle (S&N), over the last couple of years and, given the growth forecast for the market, it is easy to see why.

Euromonitor International forecasts that Indian beer volumes will grow by over 50% over the next five years, from 9.07m hectolitres in 2006 to 13.69m hectolitres in 2011. This follows growth of 45% between 2001 and 2006.

Low per capita beer consumption of just under one litre, compared with 24 litres per capita in China, underlines the potential for strong and sustained growth. Euromonitor predicts that per capita consumption will grow from 0.82 litres this year to 1.16 litres by 2011.

In addition, the country boasts not only the second largest population in the world but one which is growing rapidly, with over half a billion Indians under the age of 25. The population is forecast to grow from today's 1.10bn to 1.18bn by 2011. Annual disposable income increased by 45% between 2000 and 2005.

Changing attitudes toward alcohol are also having a dramatic impact on the Indian market. State governments are beginning to approve more licences for retail stores and extend operating hours of both on- and off-trade outlets. An increasingly 'western' view of drinking is being taken by young people and by women, leading to an upsurge in the popularity of lower-alcohol drinks at the expense of spirits.

However, there remain significant barriers to market entry and growth, including heavy customs duties and exorbitant transportation costs, as well as the Indian authorities' reluctance to grant licences for enlarging brewery capacity. These impediments have driven multinationals to seek joint ventures with local brewers in order to gain a foothold in this valuable market.

Expected any day now is an announcement concerning the future of Mohan Meakin. The company's steady decline in market share to less than 8% has caused intense takeover speculation. Since January, InBev, Heineken, Anheuser-Busch and SABMiller have each expressed an interest, with SABMiller thought to be the clear frontrunner. In April, a deal between the two companies was postponed due to issues concerning Mohan Meakin's property interests.

However, the recent election of a new governor in Tamil Nadu and the subsequent possibility of beer tax reform could spark renewed talks. Such a deal would bolster SABMiller's presence in South India, particularly in the lucrative market of Tamil Nadu, which is generally considered to be India's second largest beer-consuming state after Andhra Pradesh. It would also move SABMiller into a leading position, ahead of current leader United Breweries (UB), excluding Millennium Alcobev, UB's joint venture with S&N.

SABMiller's interest in Mohan Meakin comes in the wake of a number of significant deals for the international brewer in India. In September, SABMiller acquired the Indian brewing assets of the Foster's Group for US$120m. It also agreed a bottling deal with Kool Breweries in June for the fast-growing northern states of Haryana, Punjab and Rajasthan, which are subject to comparatively low beer duties. This follows SABMiller's acquisition in May 2005 of Shaw Wallace Group's 50% interest in the brewing operations of SABMiller's Indian joint venture, Shaw Wallace Breweries, giving it a 99% holding.

Meanwhile, Anheuser-Busch has been linked to joint ventures with both Crown Breweries, based near Hyderabad, and the S.K. Jaipuria Group, a New Delhi-based soft drinks manufacturer. Reports have suggested that the company is planning to focus on marketing while agreeing bottling arrangements with mid-sized brewers, rather than opting for an outright acquisition.

UK-based beer group Scottish & Newcastle (S&N) is already present in India, having acquired a 37.5% stake in market leader United Breweries (UB) for US$106m in January 2005. In February, UB and S&N increased their individual stakes in their joint venture, Millennium Alcobev, by 10% each, giving them 50-50 ownership.

One of Japan's largest beer makers, Sapporo Breweries, is reportedly seeking to enter the market either by forming a joint venture or by acquiring existing breweries. It intends to launch its 'third beer' brand Draft One which is a beer-like, low-alcohol (5% ABV) beverage made from pea or soy protein. Due to the absence of malt and wheat, the product is categorised as neither a regular beer nor a low-malt beer. As in Japan, this could liberate Draft One from the high taxes imposed on beer, making it more affordable to lower income consumers.

Strong beer, at around 8% ABV, is characteristic of this market. Companies like Anheuser-Busch will therefore have to introduce new, stronger variants to their portfolios if they intend to make significant inroads in the short term.

Asia Pacific Breweries (APB), the Singapore-based brewer in which Heineken owns a 42% stake, appears to be looking to boost its own portfolio. It is seeking to acquire a 76% stake in Lilasons Breweries, which owns the strong beer brand Khajuraho, present in the states of Maharashtra and Madhya Pradesh. Lilasons is seen as one of the last few independent beer breweries left in India. In May, APB acquired a 76% holding in Aurangabad Breweries for around US$18m, with an option to buy the remainder at the end of 2008, and followed this in June by forming a joint venture with the Jaipuria Group in the state of Andhra Pradesh.

Despite the potential India offers, the country's ban on alcohol advertising significantly hampers new brands in gaining sufficient consumer recognition to compete with established brands. However, UB and SABMiller have managed to skirt such regulations through the launch of soft drinks named after their beer brands, the former with Kingfisher mineral water and the latter with Haywards 5000 soda.

As the leading foreign player in the beer market, SABMiller has first-mover advantage in the face of competition from new entrants. Indeed, SABMiller's reported desire to deepen its relationship with India's Kool Breweries, the company's bottler in the northern states of Haryana, Punjab and Rajasthan, would be another significant step forward for the brewer in this rapidly developing market.

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